Good afternoon. My name is Julian, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Fastly's First Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I'd now like to turn the conference over to Vern Essi, Investor Relations at Fastly. Please go ahead.

Thank you, and welcome, everyone to our first quarter 2023 earnings conference call. We have Fastly's CEO, Todd Nightingale; and CFO, Ron Kisling with us today. The webcast of this call can be accessed through our website, fastly.com, and will be archived for one year. Also, a replay will be available by dialing 800-770-2030 and referencing conference ID number 754-3239, shortly after the conclusion of today's call. A copy of today's earnings press release, related financial tables and investor supplement, all of which are furnished in our 8-K filing today, can be found in the Investor Relations portion of Fastly's website. During this call, we will make forward-looking statements, including statements related to the expected performance of our business, future financial results, product sales, strategy, long-term growth and overall future prospects. These statements are subject to known and unknown risks, uncertainties and assumptions that could cause actual results to differ materially from those projected or implied during the call. For further information regarding risk factors for our business, please refer to our most recent Form 10-K and Form 10-Q filed with the SEC and our first quarter 2023 earnings release and supplement for a discussion of the factors that could cause our results to differ. Please refer in particular, to the sections entitled Risk Factors. We encourage you to read these documents. Also note that the forward-looking statements on this call are based on information available to us as of today's date. We undertake no obligation to update any forward-looking statements, except as required by law. Also during this call, we will discuss certain non-GAAP financial measures. Unless otherwise noted, all numbers we discuss today other than revenue will be on an adjusted non-GAAP basis. Reconciliations to the most directly comparable GAAP financial measures are provided in the earnings release and supplement on our Investor Relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results. Before we begin our prepared comments, please note that we will be attending two conferences in the second quarter: William Blair 43rd Annual Growth Conference in Chicago on June 6th, and the BMA Global Technology Conference in San Francisco on June 8th. Also we will be hosting our Investor Day on June 22 at New York Stock Exchange. With that, I'll turn the call over to Todd. Todd?

Thanks, Vern. Hi, everyone, and thanks so much for joining us today. First, I'll give a quick summary of our financial results and first quarter highlights and then provide a brief update on our product strategy and go-to market motion before I hand the call over to Ron to discuss the fourth quarter and annual financial results and guidance in detail. We reported record first quarter revenue of $117.6 million, which grew 15% year-over-year and decline 1% quarter-over-quarter. I'm pleased that we exceeded our guidance range and were able to maintain healthy revenue and typically weaker quarter due to seasonality. I'd like to congratulate the Fastly team on closing out a solid Q1. However, as I said last quarter, I still believe that remains an opportunity for us to outperform this level in 2023 and beyond. Our customer retention and growth engine remains strong. Our LTM NRR was 116% in the first quarter down from 119% in Q4. However, it gained ground compared to 115% in the year ago quarter. Our DBNER was 121% in the first quarter, down from 123% in Q4, but expanded compared to 118% in Q1 of last year. Both of these metrics have shown seasonal headwinds in prior years and despite the declines they continue to indicate healthy expansion efforts within our existing customers. In an effort to provide more visibility into our current performance, we've changed some of our metrics definitions. Our new total customer count methodology calculates the number of customers based on quarter end revenue instead of month end revenue. Our new enterprise customer count is now based on customer spending $25,000 in revenue during the quarter, instead of revenue in excess of $100,000 over the trailing 12 months. Accordingly, our average enterprise spend is based on this newer annualized approach. Ron…

Thank you, Todd. And thanks, everyone for joining us today, I will discuss our business metrics and financial results, and then review our forward guidance. Note that unless otherwise stated, all financial results in my discussions are non-GAAP based. Total revenue for the first quarter increased 15% year-over-year to $117.6 million, exceeding the top end of our guidance of $114 million to $117 million. In the first quarter, revenue from Signal Sciences products was 13% of revenue at 24% year-over-year increase, or 20% increase excluding the impact of purchase price adjustments related to deferred revenue. Be aware that we calculate growth rates off the actual figures, and the percentage of revenue is rounded to the nearest whole percent. We continue to see healthy traffic expansion from our enterprise customers. And as we've shared in the past, given our relatively smaller market share, we continue to benefit from share gains in what is typically a seasonally weak quarter relative to the fourth quarter. This coupled with the launch of our partner program, simplified packaging offerings, and investments that our go to market efforts give us confidence in our 2023 revenue guidance. Our trailing 12 months net retention rate was 116%, down slightly from 119% in the prior quarter, but up from 115% in the year ago quarter. We continue to experience very low churn of less than 1% and our customer retention dynamics remain strong. As Todd stated, we had 3,100 customers at the end of Q1, of which 540 was classified as enterprise. Let me now take a moment to discuss the changes we are implementing in our customer count metrics to provide more real time visibility to the investment community. As Todd previously indicated, going forward, we will count as an enterprise customer, any customer with 25,000 or more…

[Operator Instructions] Our first question comes from Fatima Boolani from Citi. Please go ahead. Your line is open.

Hi, good afternoon. Thank you for taking my question. Todd, I'll start with you on the Google when it seems like a really important beachhead in a very marquee customer. And so, I was hoping you can share with us some of the contours of the win into the mechanics of why you are the sole source provider of the private relay around the browser security? And if you can just give us -- and Ron maybe can give us some complexion on, what the contract looks like and some of the financial implications both near term and medium term? And then I'll have a quick follow up, please.

Sure. Thanks for the call. Thanks for the question. Yes, that's a great -- there's a great deal, I think it was really a product of a great partnership between the Fastly team and the Google team. And it helped I think that the missions are so aligned, adding privacy to the browsing experience making that web experience, not just faster, but safer. It's really close to kind of our core. I think it helps us the infrastructure that we needed was really in place. The technology had been built out had some experience in private browsing technology with other partners. And in a lot of ways, I think Fastly made the best proposal and really was the, the obvious partner for this stuff. We've been incredibly focused on security over the past couple of years. And in this case, it was a -- I think, was a real landmark win for the team. I'm super excited to be sole source in for the Google architecture here. And I think that's really just a product of performance ease with which onboarding the technology was built out and the way that teams partnered together. Ron?

Yes, I think on the deals, I mean, we've done a couple of these sort of privacy, browser privacy, engagements that, leverages our technology really well. They are, high margin business, I think from a revenue opportunity, while they're nice contributions to the overall revenue. I think, as you said, one, it gives us really an opportunity to sort of expand sort of within those customers and to other opportunities to grow to, from what I would say is nice contributed a revenue to, potentially, meaningful revenues over time with those customers.

Yes. Thank you. I think I lost you there.

Are you there, any other question?

Yes, I think I lost you there. While I'm just telling you some of the pricing commentary mentioned a very specific instance of a particular transaction that's bringing some pricing fluctuations that are going to put pressure in the interim period. I'm curious, if you can comment on any large renewals within the base that might be coming up that might be subject to maybe similar entering downward pressure, just thinking back to some of your customer concentration and commentary that did come down a little bit. But just curious if this is just sort of a one-off large customer with whom he's transacted for larger delivery revenues at that lower pricing, or if there's kind of any more down the pipe that we should be mindful at from just a renewal standpoint?

That's a good question. I think you're the one we mentioned, I think, was sort of a unique situation where there was a consolidation of suppliers. And so, our traffic levels increased materially. And so, you're less impacted really by sort of what you would say as sort of the annual renewal price discounts, but more impacted by just the volume of traffic, driving an impact from this particular customer in terms of your pricing per volume. I think one of the things though, as this, as we sort of see this, and we talk a little bit about the impact on gross margins, is the efficiency, we're seeing your across our network, the increased peering allows us to take this additional traffic on with no adverse impact, really to our gross margin expectations. I think more broadly, and I think one of the reasons we call this out as a Q2 is, we've been -- it's been really great to see, a couple of quarters where we really seen lower, if you want to call it rewrites, or discounts on an annual basis that maybe we saw historically. I think as we go forward, there's nothing particular I would call out, other than I think, an element of the market is what customers are looking for efficiency. I think that trajectory, could see some increase over time. But we don't see that being a material issue. And again, the one we spoke about was specifically more tried to volume than what you would characterize as an annual renewal and a price down.

Our next question comes from Frank Louthan from Raymond James. Please go ahead. Your line is open.

And just to kind of follow-up, how are you thinking about those larger deals as far as being more price disciplined? What is that's changing now you're able to keep those margins there? And are there any other -- is there any capabilities or things you're doing for the customers that you think you could leverage to some other larger streaming or web players? Thanks.

Great question and something we've been looking at a lot lately, when we analyze, LTM NRR and we think about growth and existing customers. To be honest, one thing that's really helping here is the portfolio expansion, seeing the velocity within the security portfolio, the compute portfolio, and even observability. We're seeing our customers at renewal time, sometimes taking the opportunity to explore the rest of our portfolio as part of that renewal, which has been helping. And that success, I think, in some ways, changes that negotiation to a degree and also I think puts us in a stronger position as a strategic partner. I think there's always going to be a natural amount of a movement here. There's more bandwidth on the internet every year and that bandwidth costs a little bit less every year. We're always going to see that, but by expanding the portfolio and using these renewals as an opportunity to become a more significant part of the customer's infrastructure. We've seen lately, I think some real success there and driving voluntary expansion and more of a strategic partner status within those customers. Anything to add?

One thing I would add is, I think those that renewal cycle, what we typically see is that really is one of the opportunities when we see that expansion most inch. So a lot of times these renewals come up. And it's not just a, kind of that annual pricing, huge sea change relative to market. But it's also tied to either increasing the product portfolio that the customer is adopting, or increasing traffic levels. And so we get that expansion motion. And then I think the efficiencies that, over the last year that we've really built into our network, which allow us to take advantage of that continuing dropping cost of bandwidth, the efficiency of their network and increased server efficiency, allow us to kind of absorb that additional traffic very efficiently. So, these renewables, while there's maybe a pricing component are also an opportunity for us to expand within that customer.

Our next question comes from Jonathan Ho from William Blair. Please go ahead. Your line is open.

One thing I wanted to understand a little bit better was, what are you seeing out in the macro environment? And is there anything that's maybe changing either, I guess, the term or length of some of these sales cycles or customers willing to commit? Just given what's happening out there?

I'll start. Yes, we've been trying to, we've been much of the analyst work and sort of trying to see, how the macro effects might affect our business. We don't have a lot of exposure to like financials, financial companies, or service providers, telco/service provider. I'd like to have a little more exposure to the SMB space, but we don't today. So the macro effects that might be slowing down that those parts of the market really don't affect us. As far as the deal cycles go, in terms of these puts and takes here, but we haven't seen a significant shift. We do see some of our large strategic customers looking at vendor consolidation. They want to manage fewer vendors, that tends to be good for us as the performance leader, being price competitive, puts us in a good negotiating position around vendor consolidation. And I understand why teams are looking to do that to simplify their operation make their teams more efficient. But from a deal cycle point of view, maybe there's some puts and takes, but we haven't seen a prevailing trend there.

Yes, I don't think I'd add anything, I think, you know, we're, as a providing the service for kind of core to the Company. So, it's not on the list of where companies are looking to necessarily cut. They are looking to drive efficiency. That has played out well for us in terms of expansion. But I really haven't seen any real change. Like I said, I think there's put some takes on the deal cycle. Some of these dynamics, trying to drive efficiency have actually accelerated some cycles, and I'm sure some cycles are taking longer, but anecdotally, our largest deals have gone incredibly quickly. Yes.

Excellent. Yes, I guess, you know, I also wanted to understand a little bit better why the decision now to change your enterprise customer count and enterprise, I think it's revenue as well, I guess, like what were you maybe not capturing with the prior methodology that maybe it's a little bit more accurate with the current methodology?

It's something we've talked about for a while we've actually, I've heard some input from investors that the historical way we did, it was very backwards looking. And so it didn't give a real contemporaneous view in terms of the progress we're making in terms of adding enterprise customers by looking at a 12 months trailing average. And so the view was, and we've been starting to look at this internally, really over the last 12 to 18 months, in terms of what is our enterprise level customer acquisitions in the current quarter look like. And we think this provides better real time information of the progress we're making, in customer acquisition, and definitely reflect better on how the business is doing. As we did this, we want to make sure that for this quarter, the next three quarters, we are going to share both numbers want to be fully transparent. But we think this is a much more timely metric. To understand how we're doing in the business.

I'll just add that 100%, that the motivation was just to try to be more transparent about what's happening now, and making the data more relevant. It also helps within the way we're managing our business, we're always looking for leading indicators. And so, we're tracking these numbers internally with our teams, much more in line with these new metrics, so that I think that helps as well.

Next question comes from James Fish from Piper Sandler. Please go ahead. Your line is open.

Todd, you had talked there about the new packaging and pricing, a little bit of details before, but can you walk us through how that is different versus what you had before remind us on that? And what the adoption kind of feedback has been so far, how many kinds of partners you have signed up at this point with the kind of the new program and how long until we could get majority of customers on kind of the new packaging modules?

Yes. So traditionally, Fastly has been largely sold on a utility model. Really, like I think, what I call a pure utility model. And that model for a lot of customers is kind of ala carte, you buy and pay for things a feature at a time. And for large strategic customers that works great. They want to do that type of tuning, and they want to analyze their costs with that level of sophistication. And for them, nothing will change our existing models continue. And we'll continue to run that motion. But in order to simplify our offering for the rest of the market, really looking at ways to give them a solution that feels more comfortable in that initial buying motion and that customer acquisition motion, and so our packages, number one, it's product line based. So it gives you all the basic options that you would need within a product line and those product lines or content delivery, security, observability and edge compute. And so, you buy one of those packages and you get everything you need. There's three tiers of those packages, kind of like a small, medium and large, and customers can choose the one that works best for them. And it gives us the benefit. We've heard a lot of positive feedback on this of predictable billing. They buy the package to their side, they get billed the same amount every month. And that takes a little bit of the risk and concern off the customer knowing that what they're going to be billed not having to guess and get surprised by a bill that we're starting to hear some feedback, we believe that will lower some of the friction, especially for new customers onboarding into the platform. So that's the reason those are…

Just a follow-up there, really with the packaging, it sounds as if it's kind of a it's called subscription base as opposed to the utility or usage base. Ron does that kind of act a little bit as a near-term headwind to growth artificially, this year, just given kind of that movement away near-term? And if so is there a way to think about kind of the quantitative impact unless you really start accelerating kind of customer count?

Yes, I don't think it really impacts kind of our current trajectory in that most of the customers we're going to be adopting this are going to be new customers and incredible business, from a segment that we really haven't penetrated deeply in the past. I think our larger customers, the enterprise customers. I mean most of those are going to continue to buy on the current model. So I don't anticipate is having an impact the impact that it will have, as it becomes a bigger piece of revenue, and it's going to reduce a lot of the volatility, it's going to improve the predictability of our revenue as we build up, a bigger base of these packaging and sort of recurring revenue streams.

Our next question comes from Sanjit Singh from Morgan Stanley. Please go ahead. Your line is open.

Hi, it's [Matt Wilson] on for Sanjit. Thanks for taking the question. Congrats on the solid quarter. I wanted to circle back to the customer consolidation efforts, the commentary you made there, the theme we've heard more of lately across software, and in our Fastly checks. But when a customer that has a multi-CDN strategy decides to consolidate vendors, like what does this conversation look like in terms of how many vendors they consolidate down to how much traffic share can Fastly gain in these efforts? And can like the new pricing and packaging, does that kind of like accelerate these, like consolidation efforts in the customer base?

Yes, I can give you my sense on that. It's a great question. The vendor consolidation tends to happen is really solely for multi-CDN customers. And the packaging largely isn't designed for those folks. People who are running multi-CDN architecture would fall into that category, think of like large, sophisticated customers who really want utility building. And so, I'm not expecting that to have an effect there. But what it looks like, generally, is a discussion about the metrics that matter. What that customers metric of success is whether it's late total latency, time ticking directivity on their application, or their website, whether it's the load on their origin, whether it's total cost, and can sometimes feel and total performance in a whole host of different ways. Get measured by our customers, our tools are largely designed to give our customers those metrics right off about this Fastly system. And then there's a discussion about turning the vendors, who either aren't delivering on the metrics that matter or are overpriced or difficult to work with, et cetera. And so, for us, I think we've seen success here, because we are a performance leader, we have a ton of focus on customer set and customer success. Our services team is extremely, extremely active and working with our customer base to ensure real the real kind of success that they care about, which is their user experience, their end user experience. And so it's largely I think, been a headwind for us, for those reasons.

And one more on gross margins is Fastly exits the year within striking distance of 60%. Like what are the efforts to get gross margins above that 60%? Is there still pairing in network optimization work that can be done in '24? Are there kind of like other levers on the call side to help gross margins?

So I've been tracking this stuff pretty closely. It's amazing the efficiency work that's being done. On the network engineering side for sure, there's peering network engineering work that we're looking at. And there's contract negotiation. As our network continues to reach new record levels of traffic, and, we become a bigger buyer of bandwidth. And so we're able to negotiate better rates, which is great. There's another side to it, which is the hardware infrastructure side. And our teams have been doing a really amazing work making our existing infrastructure more and more efficient. There's even a guy with a hat that reads fully depreciated, it's still in use. And that is a great, I think, that's a great milestone for the team. And so by making our infrastructure, more efficient, both compute, but also making our cash more efficient or storage more efficient, we're able to deploy less hardware. And in doing so, increase, obviously, how much we appreciate every month that's helping on the gross margin side, but also mentioned really helps on the cash flow side in a more immediate way. And I think you'll see that you've seen it in the last quarter or so, but you'll see it in the next four quarters just the amount of cash out the door to buy in to buy hardware and infrastructure is dropping precipitously because of that efficiency work.

Our next question comes from Tal Liani from Bank of America. Please go ahead. Your line is open.

Hi, guys, this is Madeline on for Tal today. Good to talk to you. And thanks for taking the question. Just one quick one on packaging, and then I have a follow-up pivot on product. But on packaging, if we take a customer like-for-like who would be a good candidate for the new packaging, do you expect to see any uplift at all?

Yes, a great question, I'll tell you, our intention is that it would be about breakeven. I'm sure that for some customers, there'll be it'll be put some takes here too. For some customers, maybe they'll be a little more spending for others a little less. But the benefit that we're really trying to drive here is a better user experience and easier onboarding, experience end to end to lower the friction of that onboarding motions so that we can reach new customers faster, and make it easier for them to by making it easier for them to onboard. And the three tiers really helped with that. By having kind of a starter pack mid level and high end package, that starter pack is an entry point that can give new customers have a lot of confidence that they won't have surprises as they learn more about the platform. And then of course, our customer success team can work with them over time to right size, the package their usage, that's the goal. That's really the benefit we're looking to drive. I don't expect it to be a headwind or a tailwind. If it was we would adjust.

And then just to pivot on the product side, any chance you could just talk to how edge compute has been going as well as any security priorities for this year in terms of product development? And on top of that, too, could we potentially see some uplift on the growth side from either of these categories? Thanks so much.

Yes, great. On the compute side, part of our incubation portfolio category. So I'll tell you, we're really focused on customer acquisition, that that is our driving force. And we're tracking a lot of things in that incubation zone, like how quickly our customers are able to ramp their load onto the Fastly platform? How easy the developer experiences? What kind of, you know, additional features that they need, so that we can bring those the platform and drive a broader and broader motion and compute? I expect us to stay focused on that, at least through this year. And maybe start to see some real revenue, tailwinds from compute next year. But optimistically, I'd love to see something Q4. There that has significant uplift, but it has been going pretty well and we are finding new use cases and customers, they're in some really interesting ways, especially in tech. From a security point of view, it was just RSA a couple of weeks ago, we had a great experience there. And a really great showing with tons of interest, tons of demand gen and lead gen from the teams at that conference. There's a ton of interest in the work that's being done around off protection, tons of interest on the new DDoS visibility that's being introduced onto the platform. And it's interesting, because, we've always run a sock motion security operation center motion, that is real, that's doing real time monitoring the security of our system, monitoring DDoS attacks all around the world, etc. And for the first time, we've opened that up as a paid service, managed security service, and let our customers sort of enjoy the benefits of that. And we're getting a ton of interest there, which is great. It's very cost efficient for us, it's resource resources. We add a service we already run internally, and I'm pretty bullish on that and hoping to see some significant deals in the second half.

Next question comes from Rishi Jaluria from RBC Capital Markets. Please go ahead. Your line is open.

This is Richard calling on for Rishi Jaluria. Thanks for taking my question. I just kind of a follow-up on the security roadmap, it was nice to see the managed security service rollout in the quarter but just as you think about different areas of the product portfolio, on the security side. Are there any maybe features or capabilities that you think are kind of a key focus for you, as we head into the rest of 2023 or anything that you've identified that customers really want that maybe Fastly could start to roll out? And then I have a follow-up.

In scenario that we're, that's very top of mind for us. As it is for our customers, we've just seen a ton, ton of interest here. The private browsing stuff has been super interesting and thinking about different types of anonymous proxy work that have use cases across that space has been great. But I think for the bulk of our customers off protection is very top of mind especially in e-commerce. It's just incredibly top of mind. It's a really interesting area with the technology. The state of the art is constantly changing, and the methods being used. And the signals that we use to send that information back to the origins are changing. And we are investing a ton here to really understand what is going to be best in class for the next 5, 10 years. There's some interesting early work and early sort of early discussion around technology that can be used specifically in the streaming space around security too. But I will say across the board, off protection, new types of visibility for DDoS and a real managed security service, those three areas, you get just a ton of experience, ton of interest right now and a ton of focus and R&D going on. But on the streaming side privacy protection, and providing different levels of controls for compliance, especially to compliance and statistics and analysis on that stuff, I'm not sure if the compliance stuff would technically be considered security. But our customers look at it that way and we focus on it that way too. So there's some early work and early discussions going on in that space as well, piracy, regional compliance.

And then as we just think about the rollout of the new pricing and packaging. And some of the more I guess, I don't want to say develop elaborate product lead growth initiatives. How should we think about the mix of SMB versus enterprise? I know you didn't necessarily reference a number as where you're at today. But it'd be great to get a better understanding of just kind of where you're at today and where you expect the business to go long-term?

Yes. No, it's great question. And today our business is largely, I think, what anyone would refer to as enterprise, but with a real enterprise sales motion and a high touch sales motion with not just an account executive and sales team, but a customer success team as well. And that's been very successful for us. And right now, when we look at how we think about product assisted sales, motion product, lead, sales motion product lead growth. Our first step is really focusing on the product assisted enterprise sales motion. So that's our first step and we've made some amazing strides here with full automation and sort of full of free trial management for our sales teams, new types of visibility, new types of visibility for our customers and sales folks around entitlements and service billing, etc. And that's been helping us lower the friction, that sales motion again. All of that work will apply to a more pure kind of product lead growth motion in the future that will, I think, help us attract, and really lower the friction for smaller customers on board, and really thinking about their true developer, community student community get more and more comfortable with our platform, especially our compute platform earlier and earlier on in the cycle. I think it's a little bit out for us to be really honest, we're focused on product supported enterprise sales motion this year. And next year, I think we'll be starting to look at the pure PLG motion.

Our next question comes from Will Power from Baird. Please go ahead. Your line is open.

I guess maybe Todd, maybe sticking with the security thing for just a second. Love to get the latest thoughts on your Next-Gen WAF. Maybe just, if you could help remind us, what some of the key differentiators are there what the trend lines look like? And then I guess the other element that I'm not sure we've touched on much on the product side is observability, maybe just any kind of update on trends you're seeing on that front?

Sure. Yes. Next-Gen WAF is really I think it's the crown jewel of our security portfolio. And in so many ways, it's the most important part of application security stack. The Next-Gen WAF technology passing comes from the Signal Science acquisition, it's remarkable market leading technology and the real differentiation is accuracy, and we see it in the market every day. A enormous percentage, almost 90% of our customers run our Next-Gen WAF and full blocking mode, which means they have to trust in the faith, that the accuracy is going to be so solid, that they won't be spuriously blocking their users and customers, but instead blocking attacks and malicious usage only. And that differentiation is just enormously important. The number one thing that I found myself talking to customers about at RSA this year, and really, I think it is the crown jewel of our security portfolio, we're incredibly proud of it, that Signal Science, technology, it's remarkable. It really is on the observability front, it's very early days, but we've seen some really interesting, really interesting kind of early customer use cases. We are deeply focused on this concept of edge observability. We're not looking to compete in the in the complete kind of FSO full stack observability space, but instead really focus on edge observability. And the ability to give the signals the kind of rolled up and analyzed log content that's needed for people who are running a full stack observability solution and building the most resilient, most reliable applications and websites in the world to get this new type of sort of observability right from the edge as close to the users as possible. So they can be tracking, not just reachability of their users, but the performance that those users are experiencing. We're starting to get some really early traction. I'd love to get the question a quarter or two from now and I think we'll know a little bit more. It's very early days for us.

Our last question will come from Jeff Van Rhee from Craig Hallum. Please go ahead. Your line is open.

This is Daniel Hibshman on for Jeff. Just on the channels in the push to the channels, anything that we quantify there in terms of the goals, either because of number of channel partners or percent of revenue or just what would be successful in terms of the channel push?

That's a great question. We aren't disclosing our data slice by channel and not channel, but I'd be happy to give you some thoughts in terms of internal goals. But I'd like to see, I believe in the fullness of time, we should be seeing 50% or more of our total business going through the channel, both the reseller of our service demand, service channel, as well as our cloud marketplace channels. And I think that would show help, really, healthy, vibrant partner community, which largely will not just help us reach more customers, but also help our customers on board this technology more easily. A big part of the goal here is that the software expertise at those systems integrators, shops, can be put -- can be brought to bear to help integrate Fastly technology and leverage the power Fastly faster and more effectively lower the barrier to entry and increase the speed of adoption. And I think at 50%, we would be in a position where we'd really be seeing the expertise of those systems integrators being brought to bear enough that it would be worth their investment. And that's a big part of it for us is making sure that this is that our partner program is profitable enough for those trusted partners that they want to invest, and that it makes sense for them. And for me that that's what success would look like.

And then just one more for me. Any thoughts on the trend line in terms of the customer as in the next several quarters that's been trending in a decelerating pattern? Just looking at the pipe, how are you guys thinking about customer ads over the next year or so?

Yes. I track that very closely. I appreciate that question. I think we have a lot of opportunity to tune the motion here. To be honest, it's an area where we can improve deal registration in the partner is a huge part of it and that's why we're really focused there. I think our partner for me has a huge opportunity to contribute on that sort of bringing customers to platform. Lowering the friction of the onboarding motion with what we talked about in terms of optimizing and lowering the pressure on free trials, we believe we can bring smaller customers more efficiently the platform to do that, and of course, deeply focused on demand gen like I mentioned, the RSA event, etcetera. I think that I see the trend, you see, and I believe we can turn that around. So we're going to be super focused on it in the next year.

We have no further questions. I would like to turn the call back over to Todd Nightingale for closing remarks.

Amazing, thanks so much. Before we close the call, I do want to take this opportunity to thank our employees, our customers, our partners and of course our investors. We remain as committed as ever to making the internet a better place. We're all experiences are fast paced and engaging. Moving forward, we remain focused on execution, bringing lasting growth to our business and delivering value to our shareholders. Thank you all so much for the time today. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.